Watchdog issues first stop order against crowdfunding campaign

Watchdog issues first stop order against crowdfunding campaign

Photo: Joseph Greve, via Unsplash.

Australia's corporate watchdog has issued its first-ever interim stop order against a company raising crowdsourced funding (CSF), taking aim at the indirect share structure of holiday equipment company Hirehood's CSF offer on the VentureCrowd platform.

The Australian Securities and Investments Commission (ASIC) claims the action to temporarily take down Kingscliff, NSW-based Hirehood's offer is in the public interest to protect retail investors.

The interim order is valid for 21 days unless revoked earlier, and relates to Hirehood’s use of a nominee arrangement that would not allow investors to directly acquire ordinary shares in the company.

"Instead, shares issued by Hirehood were intended to be held by a related party of the intermediary, as nominee on bare trust for the shareholders," ASIC stated in a release.

"For an offer to be valid under the current CSF regime, only fully paid ordinary shares can be offered. Hirehood’s nominee arrangement resulted in investors holding only an equitable interest in the fully paid ordinary shares, rather than full legal and equitable ownership rights normally associated with the ownership of ordinary shares.

"ASIC also took action as the offer document did not comply with the minimum content requirements prescribed in the Corporations Act and Corporations Regulations 2001, which includes providing sufficient detail about the issuer’s business model."

The first licences under Australia's CSF regime were issued in 2018 allowing for capital raising rounds worth up to $5 million, with a total of approximately $289 million raised across various platforms by the end of 2023.

The corporate regulator acknowledges that the CSF regime designed to facilitate flexible and low-cost access to capital, but reminds issuers and intermediaries that it will act "where CSF offers are not made lawfully".

"ASIC conducts targeted surveillances to ensure issuers and intermediaries are adhering to the legislative requirements of the CSF regime," ASIC stated.

"ASIC will actively enforce compliance with the CSF framework and will exercise its stop order powers or take enforcement action if necessary to address any breaches."

A spokesperson for VentureCrowd says the campaign was promptly closed upon notification, in compliance with the order.

"We respect ASIC’s regulatory role and are committed to addressing their concerns," the spokesperson says.

"Our CSF campaigns are meticulously planned to ensure compliance, and we believe the nominee structure we use is in the best interest of our investors, providing robust protection and representation, as well as enabling a cleaner cap table that is simpler for founders to manage.

"We consider that our actions are permitted under law and will be responding to ASIC on that basis. We will work transparently with ASIC to resolve this matter and ensure the best outcomes for our investors and stakeholders."

Hirehood's marketplace allows users to rent a wide range of possible items while on holiday, from car seats to surf boards to e-bikes and more. Startup Daily reports the Northern Rivers startup had $10,500 in commitments for a minimum target of $100,000 when the CSF offer document was taken down yesterday morning.

 

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